Department of Labor Update

Department of Labor Update Ian Dingwall, CPA Chief Accountant Employee Benefits Security Administration The views expressed are those of the speaker and do not necessarily represent the official position of the Department Regulatory Developments Timeliness of Participant Contributions COBRA Subsidy Under ARRA Multiemployer Plan Notices Disclosures and Penalties Under 502 (c)(4) Access to Investment Advice Penalties for Not Adopting a Funding Improvement Plan Under 502 (c)(8) 403(b) Plan Related FABs and TIAA-CREF Advisory Opinion Fee Disclosure Initiatives 1

Timely Remittance of Participant Contributions Remains an Enforcement Initiative for EBSA Participant contributions are plan assets on the earliest date that they can reasonably be segregated from the employer's general assets. In no event later than: for pension plans, the 15th business day of the month following the month in which the participant contributions are withheld or received by the employer for welfare plans, 90 days from the date on which such amounts are withheld or received by the employer. Untimely remittance of participant contributions is a prohibited transaction (regardless of financial materiality) and may constitute embezzlement of plan assets. Such information may be required to be presented in a supplemental schedule attached to the Form 5500 Timely Remittance of Participant Contributions Remains an Enforcement Initiative for EBSA Failure to timely remit participant contributions represents a control deficiency that may require a management letter pursuant to Statement on Auditing Standards No. 112, Communicating Internal Control Related Matters Identified in an Audit. FAQs providing guidance regarding the reporting of delinquent participant contributions may be found at www.dol.gov/ebsa. Further information is available through the DOL s Office of Regulations and Interpretations at (202) 693-8500. 2009 Form 5500 has new supplemental schedule disclosure format. See instructions for line 4a, Schedule H and I. 2

Safe Harbor for Employee Contributions to Small Pension and Welfare Plans Final rule issued on January 14, 2010. The final rule, unchanged from the proposed rule, creates a safe harbor period under which participant contributions to a small plan will be deemed to be made in compliance with the law if those amounts are deposited with the plan within seven business days of receipt or withholding. The Department did not expand the safe harbor to cover plans with 100 or more participants due to a lack of information and data sufficient to evaluate current practices of such employers and assess the costs, benefits and risks to participants associated with extending the safe harbor to large plans. The final rule may be viewed at www.dol.gov/ebsa under Final Rules. Department of Labor Dedicated COBRA Web Site Dedicated Web site to help understand the COBRA stimulus provisions under the American Recovery and Reinvestment Act of 2009 (ARRA). The IRS also has a COBRA website. Eligible individuals pay only 35 percent of their COBRA premiums and the remaining 65 percent is reimbursed to the coverage provider through a tax credit. Individuals must experience a COBRA qualifying event and must have occurred between September 1, 2008 and March 31, 2010. The premium reduction applies to periods of health coverage that began on or after February 17, 2009 (and lasts for up to 15 months). Information on the DOL s responsibilities relating to the COBRA provisions may be viewed at www.dol.gov/ebsa. 3

Final Rule on Multiemployer Pension Plan Information Made Available on Request Published in the Federal Register on March 2, 2010 Designed to ensure that workers have greater access to information about the operation and financial health of their multiemployer defined benefit and defined contribution pension plans. The Pension Protection Act (PPA) amended ERISA - adding a new section 101(k) to increase transparency with respect to multiemployer retirement plan operations. The documents that are required to be furnished are: Periodic actuarial reports. Quarterly, semi-annual, or annual financial reports. Certain applications filed with the Secretary of the Treasury and related determinations (amortization extensions). Final Rule on Multiemployer Pension Plan Information Made Available on Request A plan administrator must furnish the requested documents within 30 days from the request. The Secretary of Labor may assess a civil penalty against any person of up to $1,000 a day under 502 (c) (4) for each violation of section 101(k). A plan is not required to provide more than one copy of any document during any one 12-month period and may impose a reasonable charge on the requester to cover the cost of copying and mailing a document. The final rule became effective on April 1, 2010. The final rule and a related fact sheet may be viewed at: www.dol.gov/ebsa. 4

Proposed Rule Regarding Investment Advice The proposed regulation allows investment advice to be given under the statutory exemption in two ways: One is through the use of a computer model certified as unbiased. The other way is through an adviser compensated on a "level-fee" basis (i.e., fees do not vary based on investments selected by the participant). Other requirements include disclosure of fees the adviser is to receive. The regulation contains some key safeguards and conditions, including: Establishing an annual audit of investment advice arrangements, including the requirement that the auditor be independent from the investment advice provider. Requiring disclosures by advisers to plan participants. The proposed regulation and a related fact sheet may be viewed at www.dol.gov/ebsa. Multiemployer DB Pension Plans that Fail to Take Corrective Funding Action under 502(c)(8) Final rule published on February 26, 2010. Civil penalties against sponsors of multiemployer defined benefit pension plans that fail to adopt a funding improvement or rehabilitation plan in accordance with section 502(c)(8) of ERISA, as amended by the Pension Protection Act (PPA). PPA requires plans certified to be in endangered or critical status to adopt a funding improvement plan or a rehabilitation plan within 240 days from the required date of the certification. The PPA provides for civil monetary penalties of up to $1,100 per day against plan sponsors that fail to timely adopt funding improvement or rehabilitation plans. The proposed regulation may be found at www.dol.gov/ebsa under Proposed Rules. 5

Field Assistance Bulletins on Annual Reporting by 403(b) Plans In 2007, ERISA s annual reporting rules changed - to require that employers with IRC 403(b) retirement plans covered by ERISA comply, starting in 2009, with the same financial reporting rules that apply to 401(k) plans. The Department has issued three field assistance bulletins to provide plan administrators with guidance regarding how to comply with the new reporting requirements for 403(b) plans. On July 24, 2007, the Department issued Field Assistance Bulletin (FAB) 2007-02 to how the IRS regulations governing 403(b) tax-sheltered annuity programs affect the status of such programs under the Department s safe harbor regulation at 29 C.F.R. 2510.3-2(f). Field Assistance Bulletins on Annual Reporting by 403(b) Plans Field Assistance Bulletin (FAB) 2009-02 Provides guidance on transition relief from new requirements for 403(b) Plans for Form 5500 annual reporting of information on certain individual annuity contracts. Contracts must be with current and former employees that were entered into before 2009 and for which the employer has no ongoing contribution obligation. Plan administrators must make a good faith effort to comply with applicable annual reporting requirements for the 2009 plan year. 6

Field Assistance Bulletins on Annual Reporting by 403(b) Plans Field Assistance Bulletin (FAB) 2010-01 Presented as FAQs, addresses the scope of the relief provided in FAB 2009-02, and the safe harbor regulation at 29 CFR 2510.3-2(f). The Internal Revenue Service (IRS) has issued separate transition relief for 403(b) plans. This FAB complements the IRS transition relief. The FABs may be viewed at the Department s dedicated Web site for 403(b) plan guidance: www.dol.gov/ebsa/403b.html. Department of Labor Advisory Opinion - TIAA-CREF Traditional Annuity Contract Advisory Opinion 2010-01A on March 4, 2010 TIAA-CREF had asked whether the TIAA Traditional Annuity is a fully allocated contract for annual reporting purposes within the meaning of 29 C.F.R. 2520.104-44(b)(2) and the Form 5500 Instructions. Department views the Traditional Annuity as not meeting the requirements of a fully allocated contract within the meaning of 29 C.F.R. 2520.104-44(b)(2). These contracts will now be reported on Form 5500, Schedules H and I and be subject to the scrutiny of an independent audit. 7

Department of Labor Advisory Opinion TIAA-CREF Traditional Annuity Contract The Department will not reject a plan s Form 5500 Annual Return/Report or require an amended Form 5500 Annual Return/Report for 2008 and prior plan years solely for failure to report the TIAA Traditional Annuity on Schedules H or I as an unallocated insurance contract, or for failure to treat the Traditional Annuity as an unallocated insurance contract for purposes of the Schedule A or an IQPA s audit of the plan. In addition, the Department also will not reject a Form 5500 for 2008 and prior plan years on the basis of a qualified, adverse, or disclaimed IQPA opinion if the reason for such a qualified or adverse opinion or disclaimer of opinion was because the Traditional Annuity was treated as an allocated insurance contract for purposes of the IQPA audit and the plan s financial statements. For plan years beginning on or after January 1, 2009, however, the Traditional Annuity cannot be treated as an allocated contract within the meaning of 29 C.F.R. 2520.104-44(b)(2) and the Form 5500 Instructions. Department of Labor s Fee Disclosure Initiatives The Department has initiated three regulatory initiatives to improve fee disclosure and transparency The centerpiece of the proposed regulation is a requirement to provide investment-related information in a comparative chart or similar format. The Department has developed a model chart for complying with this requirement, while giving plan fiduciaries the flexibility to design their own charts or comparative formats. The chart is available on the Department s Web site at www.dol.gov/ebsa/modelcomparativechart.doc. 8

Expanded Disclosures Aimed at Informed Decision Making and Excessive Fees Disclosures to plan fiduciaries to assist in assessing 408(b)(2) reasonableness of compensation and potential conflicts of interest-(proposed 12/13/07- Interim Final) Disclosures to public and government on electronically filed Form 5500 Annual Report including indirect compensation (Schedule C)-(Final) Quarterly disclosures by plans to participants, to assist in making investment decisions (A Condition of 404 (c) Relief- Proposed 07/23/08) EFAST2 and the New Form 5500 9

E-Filing Regulation November 2007 - Amended final regulation published Requires e-filing for plan years beginning on or after January 1, 2009 E-file mandate needed for move to EFAST2 - fully electronic filing & processing system Most form changes also delayed to 2009 filings PPA related changes phased in earlier. Move to EFAST2 EFAST2 secure web portal filing system. Free DOL website-based filing option Third-party value added software filing option EFAST2 will: help reduce filing errors. make annual report information available sooner to agencies and public. continue help desk support to filers. 10

Move to EFAST2 Further technical guidance on EFAST2 filing requirements will be provided as system experience is developed. EFAST to shut down after transition to EFAST2. Expect guidance in Instructions, DFVC Program, and elsewhere to assist with transition. Electronic Filing Mandate All Form 5500 and Form 5500-SF must be submitted through EFAST2 This includes plan year 2007 and prior returns/reports. (EFAST2 FAQ #4). 2008 Form 5500 filings may be submitted on paper through EFAST. www.efast.dol.gov/faq/faq_efast.html 11

EFAST2 FAQ #4 EFAST2 FAQs can be found at: www.dol.gov/ebsa/faqs/faq-efast2.html Question 4: How can I submit a delinquent or amended Form 5500 return/report for a Title I plan for years prior to 2009 once the EFAST2 system is available? Electronic Filing with EFAST2 Two ways to create & submit filings: 3 rd Party Certified Software IFILE (free web-based filing application) Combinations OK List of approved third party software is posted on www.efast.dol.gov 12

EFAST2 Help EFAST2 website at www.efast.dol.gov FAQs Users guides Web-based tutorial Staffed help desk at 1-866-GO-EFAST during business hours Third party software certification & support Using EFAST2 Register for credentials Create a filing Check the filing for errors Sign the filing Submit the filing and check the status View filings on our website 13

Register Now for Credentials All plan sponsors & administrators must register for credentials to sign filings (Filing Signer role) Anyone wishing to fill out the forms/schedules through ifile must register for credentials to author (Filing Author or Schedule Author role) Anyone wishing to transmit completed filings through third party software MAY need to register for credentials (Transmitter role) Actuaries and accountants do not need to register but may do so if they wish. You can not use EFAST ELF credentials for EFAST2 Summary of Steps to Register Go to www.efast.dol.gov and click Register Enter contact information and select role Check your email (and spam folder) for a message from EFAST2 Click on the link in the EFAST2 message to complete your registration Keep track of your UserID and password 14

Registration Tips Use your business email address when registering, rather than your personal address. Check your spam folder if you do not receive the EFAST2 email within 5 minutes. You can change your address (including email), phone number, PIN, Password, and roles at any time. Login to the website and click User Profile. You can not modify the UserID or secret knowledge (place or date of birth). Your Personal Identification Number (PIN) is personal and not to be shared. EFAST Contacts for Helpful Information EFAST Website (www.efast.dol.gov) Information Copies of Forms & Instructions List of Approved Software Vendors FAQs EFAST Help Line (1-866-463-3278) Questions on Forms or Instructions Confirm Filings Received Contact EBSA, IRS & PBGC Technical Assistance 15

2009 Form 5500 Revisions Facilitate move to fully electronic filing system. Streamline and simplify small plan filing. Better disclosure on plan fees & expenses. Adopt Pension Protection Act (PPA) reporting changes. New Schedule C Reporting Identify each service provider who received $5,000 or more in compensation (direct & indirect). Includes new codes describing services & types of compensation Report total direct compensation paid by plan separately from total indirect compensation received by provider. Prior rule requiring plan to identify only top 40 highest paid service providers is eliminated. 16

New Schedule C Reporting For Key service providers, must also identify persons from whom provider received $1,000 or more in indirect comp. Non-monetary comp (gifts, trips, meals, etc.) included, subject to a de minimis exception Alternative Reporting Option for Eligible Indirect Compensation Only certain types of indirect comp eligible Disclosure requirements Other Fee & Schedule C Issues Bundled fee arrangements. Insurance benefit contracts. Service providers who fail to provide necessary Information. Report of terminated accountants/enrolled actuaries. Small plan fee reporting rules. Audit implications-sas 8 40 FAQs on http://www.dol.gov/ebsa 17

Small Plan Fee and Expense Reporting Schedule I filers not subject to Schedule C indirect compensation reporting rules. Must break out fees on Schedule I paid directly by plan to administrative service providers. Small plans filing Schedule A must still report information on insurance fees and commissions. Short Form has questions on direct comp paid by plan and insurance fees & commissions. Reporting by 403(b) Plans 403(b) plans treated like 401(k) plans for reporting purposes. Applies only to Title I 403(b) plans DOL safe harbor for voluntary tax sheltered annuities still available. FAB 2007-02 Audit requirement applies for large 403(b) plans Small plan 80 to 120 rule also applies. 18

2009 Audit Focus Areas Fraud Contributions Failure to Audit Investment Fair Values 157 Disclosures Benefit Payments Participant Data Increased Fraud Risks in the Current EBP Environment Current economic conditions Unexpected losses Employee furloughs and layoffs (plan sponsors and administrators) Financing and liquidity difficulties Curtailed or suspended benefits Opportunities and incentives to commit fraud 19

Types of Fraud Types of fraud: Fraudulent financial reporting Misappropriation of assets Source: AICPA Fraud Risk Factors Specific to Employee Benefit Plans EBP Fraud Conditions Three conditions generally present when fraud exists: 1. Incentive/pressure to perpetrate fraud 2. Opportunity to carry out the fraud 3. Attitude/rationalization to justify the fraudulent action Source: AICPA Fraud Risk Factors Specific to Employee Benefit Plans 20

Conducting Fraud Brainstorming Sessions Discuss how and where the plan s financial statements might be susceptible to material misstatement due to fraud Who should participate? When should the brainstorm be conducted? Who to ask in plan management? Brainstorming Do s and Don'ts Don t Only have a mass brainstorming session Conduct session without partner involvement Get input from only the audit partner and manager Come into the meeting without current year planning information Let past experience with client sway you to overlooking risks Conduct a session customized to each specific engagement Do Use all audit team members and invite new ideas from all Have examples of what could go wrong and discuss what we know or don t know As about the impact of current economy on this specific client Be professionally skeptical 21

Contributions No work performed (Where was documentation?) Insufficient work regarding contributing employers Failure to test payroll internal controls Failure to test elective deferrals No payroll testing Failure to Audit Investments at Fair Value Failure to test year end asset values No evidence of work performed Failure to test investment transactions Failure to obtain certification from an eligible entity Failure to test participant loans Inappropriate reliance on SAS 70 22

FAS 157 Disclosures Requires assets to be disclosed in one of three valuation levels Plan administrators, not auditors, determine fair value of plan assets Limited-scope certifications may/may not reflect fair values of assets Circumstances may dictate performing a full scope audit Benefit Payments No audit work performed Failure to test eligibility to receive benefits No audit program Inappropriate reliance on SAS 70 23

Participant Data No audit work performed (Where was documentation?) Failure to adequately test payroll data. Failure to adequately test eligibility, terminations and/or forfeitures. Are the proper people participating in the plan? Questions 24